Demand and supply
The Economic Implications of Housing Supply
Edward Glaeser & Joseph Gyourko
Journal of Economic Perspectives, Winter 2018, Pages 3-30
Abstract:
In this essay, we review the basic economics of housing supply and the functioning of US housing markets to better understand the distribution of home prices, household wealth, and the spatial distribution of people across markets. We employ a cost-based approach to gauge whether a housing market is delivering appropriately priced units. Specifically, we investigate whether market prices (roughly) equal the costs of producing the housing unit. If so, the market is well-functioning in the sense that it efficiently delivers housing units at their production cost. The gap between price and production cost can be understood as a regulatory tax. The available evidence suggests, but does not definitively prove, that the implicit tax on development created by housing regulations is higher in many areas than any reasonable negative externalities associated with new construction. We discuss two main effects of developments in housing prices: on patterns of household wealth and on the incentives for relocation to high-wage, high-productivity areas. Finally, we turn to policy implications.
The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco
Rebecca Diamond, Timothy McQuade & Franklin Qian
NBER Working Paper, January 2018
Abstract:
We exploit quasi-experimental variation in assignment of rent control to study its impacts on tenants, landlords, and the overall rental market. Leveraging new data tracking individuals' migration, we find rent control increased renters' probabilities of staying at their addresses by nearly 20%. Landlords treated by rent control reduced rental housing supply by 15%, causing a 5.1% city-wide rent increase. Using a dynamic, neighborhood choice model, we find rent control offered large benefits to covered tenants. Welfare losses from decreased housing supply could be mitigated if insurance against rent increases were provided as government social insurance, instead of a regulated landlord mandate.
Strip Clubs, "Secondary Effects," and Residential Property Prices
Taggert Brooks, Brad Humphreys & Adam Nowak
Real Estate Economics, forthcoming
Abstract:
Municipalities regulate sexually oriented businesses (SOBs) through the "secondary effects" doctrine, which justifies limiting First Amendment speech protections inside SOBs. Negative effects of SOBs on nearby neighborhood quality is a frequently cited secondary effect. Little empirical evidence exists that SOBs generate such negative externalities. If SOBs generate negative externalities then nearby property prices should decrease when a strip club opens. We estimate regression models of housing prices to determine the effect of new clubs on nearby residential property prices in Seattle, exploiting the termination of a 17 year moratorium on openings and find no evidence that strip clubs have "secondary effects."
Is regulation to blame for the decline in American entrepreneurship?
Nathan Goldschlag & Alex Tabarrok
Economic Policy, January 2018, Pages 5-44
Abstract:
Mounting evidence suggests that economic dynamism and entrepreneurial activity are declining in the United States. Over the past 30 years, the annual number of new business startups and the pace of job reallocation have declined significantly. We ask whether this decline in dynamism can be explained by federal regulation. We combine measures of dynamism with RegData, a novel dataset leveraging the text of the Code of Federal Regulations to create annual measures of the total quantity of regulation by industry. We find that rising federal regulation cannot explain secular trends in economic dynamism.
Kaldor and Piketty's Facts: The Rise of Monopoly Power in the United States
Gauti Eggertsson, Jacob Robbins & Ella Getz Wold
NBER Working Paper, February 2018
Abstract:
The macroeconomic data of the last thirty years has overturned at least two of Kaldor's famous stylized growth facts: constant interest rates, and a constant labor share. At the same time, the research of Piketty and others has introduced several new and surprising facts: an increase in the financial wealth-to-output ratio in the US, an increase in measured Tobin's Q, and a divergence between the marginal and the average return on capital. In this paper, we argue that these trends can be explained by an increase in market power and pure profits in the US economy, i.e., the emergence of a non-zero-rent economy, along with forces that have led to a persistent long term decline in real interest rates. We make three parsimonious modifications to the standard neoclassical model to explain these trends. Using recent estimates of the increase in markups and the decrease in real interest rates, we show that our model can quantitatively match these new stylized macroeconomic facts.
How do federal regulations affect consumer prices? An analysis of the regressive effects of regulation
Dustin Chambers, Courtney Collins & Alan Krause
Public Choice, forthcoming
Abstract:
This study is the first to measure the impact of federal regulations on consumer prices. By combining consumer expenditure and pricing data from the Bureau of Labor Statistics, industry supply-chain data from the Bureau of Economic Analysis, and industry-specific regulation information from the Mercatus Center's RegData database, we determine that regulations promote higher consumer prices, and that these price increases have a disproportionately negative effect on low-income households. Specifically, we find that the poorest households spend larger proportions of their incomes on heavily regulated goods and services prone to sharp price increases. While the literature explores other specific costs of regulation, noting that higher consumer prices are a probable consequence of heavy regulation, this study is the first to provide a thorough empirical analysis of that relationship across industries. Irrespective of the reasons for imposing new regulations, these results demonstrate that in the aggregate, the negative consequences are significant, especially for the most vulnerable households.
Assessing the efficiency of local open space provision
Corey Lang
Journal of Public Economics, February 2018, Pages 12-24
Abstract:
This paper tests the efficiency of local provision of land conservation. I examine how housing prices, which capitalize open space amenities and future tax obligations, change after municipalities vote on referendums for conservation spending. Using a dynamic regression discontinuity based on voting outcomes, results suggest that average housing prices increase about 0.68-1.12% for every $1000 per household of open space spending authorized, which indicates inefficiency and underprovision of conservation. I also examine tax capitalization and supply side explanations for estimated capitalization.
Bringing the Effects of Occupational Licensing into Focus: Optician Licensing in the United States
Edward Timmons & Anna Mills
Eastern Economic Journal, January 2018, Pages 69-83
Abstract:
The labor market institution of occupational licensing continues to grow in scope in the United States and abroad. In this paper, we estimate the effects of occupational licensing on opticians using data from the US Census and American Community Survey. Our results suggest that optician licensing is associated with opticians receiving as much as 16.9 percent more in annual earnings. In an examination of malpractice insurance premiums in all states and participation rates in optician certification programs in Texas, we find little evidence that optician licensing has enhanced the quality of services delivered to consumers. By and large, optician licensing appears to be reducing consumer welfare by raising the earnings of opticians without enhancing the quality of services delivered to consumers.
High on Creativity: The Impact of Social Liberalization Policies on Innovation
Keyvan Vakili & Laurina Zhang
Strategic Management Journal, forthcoming
Abstract:
We use a large-sample inductive approach to explore the impact of two social liberalization policies (legalization of same-sex civil unions and medical marijuana) and one anti-liberalization policy (passage of abortion restrictions) on innovation. First, we show that liberalization policies increase state-level patenting while the anti-liberalization policy reduces patenting. Next, we examine three possible mechanisms that could explain the findings. The results suggest that liberalization policies can increase the collaboration diversity of inventors, and hence the rate, novelty, and impact of their innovation output, through promoting more liberal views and more openness to diversity. We also find speculative evidence that social liberalization policies increase entrepreneurial entry through promoting more diverse social interactions. We do not find evidence for liberal policies attracting top inventors from other regions.
Incomplete Disclosure: Evidence of Signaling and Countersignaling
Benjamin Bederson et al.
American Economic Journal: Microeconomics, February 2018, Pages 41-66
Abstract:
In 2011, Maricopa County adopted voluntary restaurant hygiene grade cards (A, B, C, D). Using inspection results between 2007 and 2013, we show that only 58 percent of the subsequent inspections led to online grade posting. Although the disclosure rate in general declines with inspection outcome, higher-quality A restaurants are less likely to disclose than lower-quality As. After examining potential explanations, we believe the observed pattern is best explained by a mixture of signaling and countersignaling: the better A restaurants use nondisclosure as a countersignal, while worse As and better Bs use disclosure to stand out from the other restaurants.
Pareto improvements from Lexus Lanes: The effects of pricing a portion of the lanes on congested highways
Jonathan Hall
Journal of Public Economics, February 2018, Pages 113-125
Abstract:
Though economists have long advocated road pricing as an efficiency-enhancing solution to traffic congestion, it has rarely been implemented, primarily because it is thought to create losers as well as winners. This paper shows that a judiciously designed toll applied to a portion of the lanes of a highway can generate a Pareto improvement before using the revenue, a sufficient condition being that drivers with a high value of time travel at the peak of rush hour. I obtain these new theoretical results by extending a standard dynamic congestion model to reflect an important additional traffic externality: extra traffic does not simply increase travel times, but also introduces frictions that reduce throughput. The analysis draws attention to a practical policy that may help overcome the widespread opposition to road pricing.
Bundling and quality assurance
James Dana & Kathryn Spier
RAND Journal of Economics, Spring 2018, Pages 128-154
Abstract:
With imperfect private monitoring, a firm selling two experience goods can increase both producer and consumer surplus by bundling. Bundling constrains consumers to buy two products, making consumers better informed and ensuring that they use tougher punishment strategies. Both increased monitoring and increased punishment benefit other consumers, so bundling overcomes a free-rider problem. The social value of bundling is even larger if consumers cannot attribute a negative signal to the specific product that generated it, or if one of the two goods is a durable and the other is a complementary nondurable. Our results are robust to mixed bundling.
Experimentation by Industrial Selection
Bennett Holman & Justin Bruner
Philosophy of Science, December 2017, Pages 1008-1019
Abstract:
Industry is a major source of funding for scientific research. There is also a growing concern for how it corrupts researchers faced with conflicts of interest. As such, the debate has focused on whether researchers have maintained their integrity. In this article we draw on both the history of medicine and formal modeling to argue that given methodological diversity and a merit-based system, industry funding can bias a community without corrupting any particular individual. We close by considering a policy solution (i.e., independent funding) that may seem to promote unbiased inquiry but that actually exacerbates the problem without additional restrictions.
Trade Secrets and Innovation: Evidence from the 'Inevitable Disclosure' Doctrine
Andrea Contigiani, Iwan Barankay & David Hsu
University of Pennsylvania Working Paper, January 2018
Abstract:
Does heightened employer-friendly trade secrecy protection help or hinder innovation? By examining U.S. state-level legal adoption of a doctrine allowing employers to curtail inventor mobility if the employee would "inevitably disclose" trade secrets, we investigate the impact of a shifting trade secrecy regime on individual-level patenting outcomes. Using a difference-in-differences design taking unaffected U.S. inventors as the comparison group, we find strengthening employer-friendly trade secrecy adversely affects innovation. We then investigate why. We do not find empirical support for diminished idea recombination from suppressed inventor mobility as the operative mechanism. While shifting intellectual property protection away from patenting into trade secrecy appears to be at work, our results are consistent with reduced individual-level incentives to signaling quality to the external labor market.